T: 0131 341 4250|E: andrew@salonfrog.com
T: 0131 341 4250|E: andrew@salonfrog.com
National insurance contributions and dividend tax rates will increase by 1.25 percentage points across the whole UK from 01 April 2022.
The effect | Summary
1. Employees
Those of your staff earning above £9,568 (2021/22 rates) will have 1.25% more NI deducted from their pay packets.
So a stylist earning £18,000 pa will be £105 worse off per year.
2. Salon Owners (as employers)
For each of your employees earning above the class 1 secondary threshold (currently £8,840 in 2021/22), it will cost you an additional 1.25% class 1 secondary NIC.
So one of your stylists earning £18,000 pa will cost you another £114.50 per year.
For most of you, the first £4,000 of your employers NI is free (for our Clients we claim this for them).
Dividends
On top of the employers NI, you will also pay an additional 1.25% income tax on any dividends you take from your business from 01 April 2022; taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.
3. Self employed (chair/space renters)
Those renters with profits above £9,568 (2021/22 rates) will pay an additional 1.25% class 4 (self-employed) national insurance.
Then from 01 April 2023.
From April 2023, the increases will be legislated separately as a “health and social care levy” and NIC rates will return to 2021/22 levels (so you’ll pay NI as usual but have an additional ‘health’ tax to pay of an equivalent amount.
Salonfrog were asked by The Salon Magazine for our advice to salon owners now we’re heading out of the pandemic.
It’s a really good read (ok, we would say that!) and we advise all salon owners to have a look.
It starts on page 54:
https://thesalonmagazine.co.uk/may-2021-issue/
HMRC has published a policy paper giving details of the fifth Self-Employment Income Support Scheme (SEISS) grant which will be available from late July 2021.
The fifth SEISS grant, available to self-employed individuals and members of a partnership, was announced at Budget 2021.
Key conditions
The fifth grant has similar qualifying conditions to the fourth SEISS grant. To be eligible:
What is different?
The amount of the grant is determined based on how much turnover has decreased in the year April 2020 to April 2021, and where turnover has decreased by:
30% or more: The full grant of 80% of three months’ average trading profits, capped at £7,500, will be paid.
Less than 30%: A reduced grant of 30% of three months’ average trading profits, capped at £2,850, will be paid.
Rishi Sunak has expanded the Bounce Back Loan Scheme’s (BBLS) Pay As You Grow repayment plan.
Businesses can delay repayments for a further six months and extend their loan term:
Delay repayments
Originally you had to start repaying your loan 12 months after taking it out. You can now extend this another 6 months – i.e. start repaying it after 18 months rather than 12.
Extend loan term
Also, you can extend the loan repayment period from its original 6 years, to 10 years.
All options summary
In summary, all businesses will be offered the following options by their lender:
Talk to the Bank you took your bounce back loan out from to organise any of these changes.
As we reported last year (here), if you took advantage of HMRC’s scheme to defer your VAT payments between 20 March and 30 June 2020 (as most did), you are required to pay the VAT debt in full by 31 March 2021.
Pay over 11 months
However, you can now pay the amount owed over 11 months by applying via an online portal which will be open from 23 February 2021, but tax agents (like Salonfrog) cannot do this on behalf (although you will be charged interest at 2.6% from 1 April 2021).
HMRC is asking businesses to pay their VAT debts in full by 31 March 2021 if they can. Where the cash is not available the business must apply online to spread the payment of the debt over up to 11 instalments ending in January 2022.
If you don’t pay the full amount by 31 March 21 or join this scheme to pay over 11 months, HMRC will impose penalties for late payment, and possibly initiate debt collection action against you.
Online portal
The company director or business owner must access this portal themselves, tax agents nor their accountants can’t use it to arrange a VAT payment plan on behalf of clients.
This is because as part of the payment plan the business must set up a direct debit to make regular payments from their business bank account. Tax agents don’t have the authority to make payments out of clients’ bank accounts, so can’t enter the agreement on behalf of clients.
Conditions
Before a business can use this new VAT deferral scheme it needs to get all its VAT ducks in a row as follows:
The good news is HMRC will allow businesses to arrange a payment plan for the deferred VAT even if they have already entered a time to pay arrangement for other taxes.
The business owner/ director must have the authority to set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up, perhaps because there is no UK bank account, or the account has two signatories, the business owner must call HMRC on 0800 024 1222.
If the business doesn’t have the cash to even pay the first instalment of VAT, the owner should contact the HMRC payment support service on 0300 200 3835.
Join sooner rather than later
HMRC wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to this scheme to spread the payments, the fewer instalments will be available to it.
For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March 2021, but if it joins the scheme in June 2021 it can only spread the debt over eight instalments.
If the business owner can’t use the online portal, they should call HMRC on 0800 024 1222 to arrange a payment plan, and this telephone service will be open until 30 June 2021.
Claims for the third SEISS grant must be submitted by 29 January.
Here’s further guidance on making the claim and what to add to your tax return.
Deadline
The window to apply for the 3rd SEISS grant closes on 29 January and it is not usually possible to make a late claim under the scheme.
Conditions
The additional conditions for the 3rd grant have caused some confusion:
i. When deciding whether a taxpayer meets the “significant reduction in trading profits” test for the 3rd SEISS grant, the taxpayer does not need to take into account the first and second SEISS grants, nor any other COVID-19 government support payments received.
ii. If the 1 November 2020 to 31 January 2021 eligibility period for the 3rd grant straddles two basis periods, it is sufficient to be able to show a significant reduction in trading profits for one of the basis periods. The taxpayer does not need to show a significant reduction in both basis periods to be eligible for the third grant.
iii. When assessing whether there has been a significant reduction in trading profits, the comparison period is not specified in HMRC’s guidance. The taxpayer can use the previous year or an average of say the last three years trading profits, but a reduction against an earlier forecast for the relevant basis period would also be valid.
iv. Where a taxpayer has more than one trade it is sufficient to show that one of the trades has suffered reduced activity, capacity, or demand, or has been temporarily unable to operate since 1 November 2020, and that the taxpayer reasonably believes that this will cause a significant reduction in the profits compared with what they would otherwise have expected for that trade. The taxpayer does not have to consider the two trades together.
v. In some cases, the reduction in activity, capacity, or demand may be only partly due to COVID-19 restrictions. For example, a taxpayer might decide to take on a part-time job or college course alongside their reduced self-employment. So long as at least some of the reduced activity, capacity or demand is due to COVID-19 restrictions the taxpayer would be eligible for the third grant.
Reporting SEISS grants on tax returns
SEISS grants are all taxable in the 2020/21 tax year, whatever date the taxpayer prepares their accounts to. No element of the SEISS grants should be reported in the 2019/20 self assessment tax returns that are due to be filed by 31 January 2021.
Fourth grant
The government has announced that there will be a fourth grant, covering the period February to April 2021. The conditions for the fourth grant, and the amount, have not yet been released . Pending a further announcement it would be advisable to ensure that 2019/20 tax returns are filed by the 31 January deadline.
It is not yet know whether information from 2019/20 tax returns will be taken into account for the fourth grant, but suggests it would be wise to ensure that they are filed on time in case that does happen.
Full details of the third SEISS grant to support self-employed people affected by coronavirus (COVID-19) have just been published on GOV.UK.
The rules on who is eligible to claim have changed.
However, you will still need to have submitted a Self Assessment tax return for the tax year 2018 to 2019 showing self-employment income in order to claim (unless one of the existing exceptions applies).
The third grant, which offers 80% of three months’ average trading profits, paid out in a single taxable instalment capped at £7,500, will be available covering the period from 1 November 2020 to 29 January 2021. Self-employed people who are eligible and in need of support will be able to claim the third grant at any time from 30 November 2020 to 29 January 2021.
Unfortunately we cannot do this for our Clients
Like SEISS 1 and 2, we cannot claim this grant on behalf of our clients
Check you are eligible
You should check since this 3rd grant is different to the previous SEISS grants.
To make a claim for the third grant, you must meet a number of conditions, and make an honest assessment about whether you reasonably believe your trading profits will be significantly reduced due to coronavirus.
As before, to make a claim for the third grant, you must be:
i.e. Only claim if the reduction in profits is caused by reduced business activity, capacity or demand, or inability to trade due to coronavirus – reduction in profits due to increased costs (such as having to buy masks) does not count for this purpose.
Your business must have been impacted on or after 1 November 2020. You must keep evidence to show the impact and reduction in your business activity across the qualifying period.
More information
For more information and examples to help you check eligibility to claim, go to GOV.UK and search for ‘Self Employment Income Support Scheme’.
HMRC is contacting all self-employed people in the UK that may be eligible to let them know about the third grant.
There will also be a fourth grant (covering the three-month period from February 2021 to April 2021). We’ll tell you more about that nearer the time, including how much it will be and the rules for claiming.
If you (like most salons) deferred your VAT payment between 20 March and 30 June 2020 under the coronavirus VAT scheme, you now have a new choice on how to repay it. Previously it was simply due by the end of March 2021, but now you have a second option:
If you want to opt in to the new payment scheme
This new scheme has just been announced by HMRC.
So instead of paying the full amount you owe by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free.
All instalments must be paid by the end of March 2022.
To do this however, you must be up to date with your other VAT returns (having submitted and paid all other ones due).
You cannot opt in just yet – the online ‘opt in’ process will not be available until early 2021 but that’s not too far away now.
In the meantime, if you are repaying this VAT, consider using this scheme instead.
VERY IMPORTANT:
You have to opt in yourself as HMRC have said that HMRC agents (which Salonfrog is) cannot do this for you. No idea why this is.
However, when the opt in is available, we’ll see what you have to do and provide you detailed instructions.